Economic contraction of 0.1% in the second quarter

Shoppers walking in the rain on Oxford Street, London.

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The UK economy contracted in the second quarter of 2022, as the cost of living crisis engulfed the country.

Official figures published on Friday showed that gross domestic product shrank 0.1% on a quarterly basis in the second three months of the year, less than the 0.3% contraction analysts had expected.

It follows a 0.8% GDP expansion in the first quarter of the year.

last week , Bank of England Warning that she expects The British economy is entering its longest recession since the global financial crisis in the fourth quarter. Meanwhile, inflation is expected to peak above 13% in October.

Monthly estimates showed GDP fell 0.6% in June, below the consensus forecast of 1.3%, but down from the revised 0.4% expansion in May.

“Growth in the UK is sluggish as the economy faces challenges from severe real income pressures amid rising inflation and higher interest rates,” said Hussain Mahdi, macroeconomic and investment analyst at HSBC Asset Management.

“Against this backdrop, it will be difficult to avoid a recession, especially with the upside risks to energy prices approaching as winter approaches.”

The ceiling on energy prices in the UK is expected to reach 4,266 pounds ($5,191.96), according to consultancy Cornwall Insight, leaving millions of households struggling to pay their bills.

Despite the macroeconomic headwinds, HSBC supports UK big-cap stocks to continue to outperform this year in light of “commodity exposure, value and defensive names”.

The Office for National Statistics, which publishes growth figures, said the contraction was largely driven by a decline in service production, with the biggest drag being health and social work activities, reflecting a decline in Covid-19 activities.

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He noted that there was a 0.2% decrease in household consumption in the second quarter, offset by a positive contribution from net trade.

“Like clockwise, inflation is starting to weigh on economic activity in the UK, with household spending contracting 0.2% on a quarterly basis,” said Barrett Coplian, chief economist at PricewaterhouseCoopers.

Inflation hit a 40-year high of 9.4% in July and is expected to continue rising through the fall.

“There has been some positive news on consumer-facing sectors including the hospitality sector, but it is likely to be short-lived once the weather cools and tourism activity subsides,” Kopelian said.

“The UK has entered a low-growth, high-inflation environment. With the Bank of England tightening financial conditions, all eyes are now on policy makers to help shape future sources of growth.”

This is a developing news story and will be updated soon.

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